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THE SUPREME COURT OF NEW HAMPSHIRE

___________________________

Department of Environmental Services

Nos. 2002-335
2002-448

APPEAL OF TOWN OF NEWINGTON

(New Hampshire Department of Environmental Services)

Argued: February 13, 2003

Opinion Issued: April 21, 2003

Upton & Hatfield, LLP, of Concord (Robert Upton II on the
brief and orally), for the petitioner.

Gallagher, Callahan & Gartrell, P.A., of Concord (Michael D.
Ramsdell on the brief and orally), for the respondents.

DALIANIS, J. The petitioner, the Town of Newington (town), appeals an order
by the New Hampshire Department of Environmental Services (DES) granting the
respondents, Newington Energy, LLC, and Hawkeye Funding, LP (collectively NEL),
several property tax exemptions under RSA 72:12-a (Supp. 2002). On appeal, the
town specifically objects to DES granting: (1) a 100% exemption for a water
injection system; (2) a 50% exemption for two stacks; (3) a 100% exemption for
certain temporary construction devices; and (4) a 100% exemption for a storm
water management system. NEL has cross-appealed, arguing that DES erred by: (1)
reducing the exemption for the stacks to 50%; and (2) denying an exemption for
heat recovery steam generators (HRSG) and an associated demineralization system.
We affirm in part, vacate in part and remand.

NEL constructed and operates a combined cycle electric generation facility in
Newington. On October 17, 2001, NEL applied to DES for several pollution control
property tax exemptions. On March 29, 2002, DES issued its decision on the
application,granting full exemptions for the water injection system,
the stacks, the temporary construction devices, and the storm water management
system, and denying an exemption for the HRSG and associated portion of the
demineralization system.

After consideration of motions for rehearing filed by both parties, DES
reduced the tax exemption for the stacks from 100% to 50%, but otherwise
reaffirmed its March 29 ruling. Each party now appeals.

Originally, the town argued that the procedures followed by DES violated RSA
chapter 541-A and the due process protections afforded by Part I, Article 15 of
the New Hampshire Constitution. Because these issues were later withdrawn,
however, we address only the tax exemption arguments.

RSA 72:12-a states, in pertinent part:

I. Any person, firm or corporation which builds, constructs,
installs, or places in use in this state any treatment facility, device,
appliance, or installation wholly or partly for the purpose of reducing,
controlling, or eliminating any source of air or water pollution shall be
entitled to have the value of said facility and any real estate necessary
therefor, or a percentage thereof determined in accordance with this
section, exempted from the taxes levied under this chapter for the period of
years in which the facility, device, appliance, or installation is used in
accordance with the provisions of this section.

. . . .

III. The department shall investigate and determine whether the
purpose of the facility is solely or only partially pollution control. If
the department finds that the purpose of the facility is only partially
pollution control it shall determine by an allocation of the applicant’s
investment in the facility what percentage of the facility is used to
control pollution. In making its investigation, the department may inspect
the facility and request such other information from the applicant as is
reasonably necessary to assist it in making its determination.

The scope of our review of agency decisions under RSA 72:12-a is narrow. Appeal
of City of Berlin, 131 N.H. 285, 289 (1988). Agency findings are deemed primafacie lawful and reasonable, and we will not sit as a trier of fact in
reviewing them. Appeal of Town of Hampton Falls, 126 N.H. 805, 812-13
(1985). However, we will overturn agency decisions when the appealing party
shows by a clear preponderance of the evidence that the agency’s decision is
unjust, unreasonable or unlawful. Id.

I. Water Injection System

The town argues that DES erred when it granted NEL a 100% exemption for the
facility’s water injection system, which injects water into the combustion
turbine to reduce its operating temperature. DES ruled that the sole purpose of
the temperature reduction was to reduce emissions of the air pollutant nitrogen
oxide (NOx) when the facility is using backup oil fuel, rather than natural gas,
to generate electricity. Accordingly, DES granted the system a 100% exemption.
The town does not dispute that the system reduces NOx emissions, but argues that
its actual purpose is to permit the facility to maximize power generation when
using backup fuel without subjecting the turbines to damage from high
temperatures. The town argues that the reduction of NOx emissions is merely
incidental to the system’s operational purpose. Thus, the town argues that the
grant of a 100% exemption was error because at least part of the system’s
purpose did not relate to the reduction of air pollution.

In an affidavit in support of NEL’s application, Ronald Bozgo, a Vice
President of Consolidated Edison Development, a principal owner of NEL,
described the chemical reaction that results in the formation of NOx and
explained that NOx formation increases in relation to increases in the
combustion turbine’s flame temperature. He stated that in order to reduce NOx
formation, the water injection system is used to reduce flame temperature. Thus,
he concluded that the sole purpose of the system is to reduce the formation of
NOx when backup fuel is in use and that there was no operational reason to
install such a system other than to reduce NOx formation. In fact, he stated
that "there are significant undesirable operational side effects associated
with a water injection system . . . ."

The town presented an affidavit from George E. Sansoucy, a professional
engineer, in support of its claim that the pollution control benefits of the
system were merely incidental to its power augmentation purpose. Sansoucy
conceded that the water injection system reduced flame temperature, but asserted
that the reduction was intended to increase power output, not to control
pollution.

DES agreed with NEL that the sole purpose of the system was to control
pollution. It found that Sansoucy’s affidavit lacked specific information
supporting his conclusions. DES noted, however, that it agreed with the town
that the sole purpose of the steam injection portion of the system was to
increase power production, and consequently it had denied an exemption for that
portion.

DES, not the court, sits as the trier of fact and evaluates the competing
evidence. City of Berlin, 131 N.H. at 289. We are reluctant to substitute
our judgment for the expertise of administrative agencies. Town of Hampton
Falls, 126 N.H. at 814. The finding at issue is supported by the record, and
we are not persuaded by a clear preponderance of the evidence that DES’
decision was unreasonable, unjust or unlawful. Seeid.

II. Storm Water Management System

The town argues that DES erred in granting NEL’s storm water management
system a 100% exemption. The storm water management system consists of catch
basins, a subsurface collection system, grassed drainage swales, two onsite
detention basins, rip-rap for energy dissipation and roof drain systems. NEL
claimed in its application that the sole purpose of the system is pollution
control. DES granted a 100% exemption for the system, except for the roof drains
which it determined were installed only for the purpose of removing water from
the roof. On appeal, the town argues that the pollution control benefits of the
system are merely fortuitous, and that the actual purpose of the system is to
prevent flooding. Thus, according to the town, only additional investment
related to pollution control, if any, should be exempted.

In support of its application, NEL again submitted an affidavit from Ronald
Bozgo, in which he described the various functions of the storm water management
system and related each to pollution control. He stated that the system included
equipment designed to "minimize erosion, stabilize embankments and control
runoff" as well as measures to "trap sediments preventing silt-laden
runoff water from transgressing into sensitive environmental areas." The
town, on the other hand, provided no evidentiary support for its claim that all
or part of the system’s purpose is flood prevention.

DES determined that each part of the storm water management system, other
than the roof drains, contributed to minimizing and collecting pollutants which
would otherwise be discharged directly to surface water or wetlands. DES found
that the system was carefully engineered to minimize water pollution and
complied with recommendations prepared for DES. Moreover, contrary to the town’s
position, DES found that flooding could be prevented simply by grading in such a
way as to properly direct runoff. Accordingly, we conclude that the DES ruling
is supported by the record and is not unreasonable, unjust or unlawful. SeeCity of Berlin, 131 N.H. at 289.

III. Temporary Construction Devices

The town argues that DES erred in granting NEL a 100% exemption for temporary
construction devices that prevent erosion and intercept, collect and treat
sediment-laden construction runoff. DES noted that because the devices were
temporary, the exemptions would be limited to the period of time that the
devices were in use. The town does not dispute that the devices control
pollution during construction. Rather, the town argues that RSA 72:12-a only
permits tax exemptions for permanent pollution control facilities. We disagree.

In construing a statute, we look first to its plain meaning. SeeGoode
v. N.H. Legislative Budget Assistant, 148 N.H. 551, 553-54 (2002). Further,
when examining statutory language, we construe all parts of a statute together
to effectuate its overall purpose and to avoid an absurd or unjust result. Handley
v. Town of Hooksett, 147 N.H. 184, 188 (2001). Unless we find that the
statutory language is ambiguous, we need not look to legislative intent. Seeid.

RSA 72:12-a does not prohibit a tax exemption for temporary pollution control
devices. Under the plain meaning of RSA 72:12-a, I, "any treatment
facility" that is placed in use for the purpose of pollution control is
exempt from taxation. The only statutory time restriction is that the exemption
is limited to the period of years when the device is in use for the purpose of
pollution control. RSA 72:12-a, I. Thus, under the statute, a temporary
pollution control device should be granted a temporary tax exemption. Seeid. Moreover, given that the purpose of the statute is "to encourage
construction of pollution control facilities," Appeal of Public Serv.
Co. of N.H., 124 N.H. 79, 85 (1983), denying an exemption to temporary
facilities would be counterproductive because it would discourage the
construction of temporary devices that serve important pollution control
purposes. Accordingly, DES properly granted NEL an exemption for the temporary
construction devices.

IV. The Stacks

Both the town and NEL appeal the ruling granting a 50% exemption for two
stacks. DES originally granted NEL a 100% exemption for the stacks because they
disperse pollutants high into the air, reducing air pollution concentrations.
However, after the town asserted that the stacks also serve purposes other than
pollution control, such as increasing air flow to facilitate combustion, DES
reduced the exemption to 50%.

NEL argues that DES’ determination must be reversed because DES did not
make sufficient findings of fact to support its decision. We agree. We cannot
meaningfully review an agency’s determination when it provides no illumination
of its conclusions. SeeAppeal of Mikell, 145 N.H. 435, 442
(2000). Here, DES recognized the "dual function" of the stacks –
pollution control and operational exhaust requirements – and then "deem[ed]
the operational purpose to be equally as important as the air pollution control
purpose." But DES provided no reasoning for this determination. Neither
party has asserted that the stacks serve each function equally; nor did either
party seek a 50% exemption.

Under RSA 72:12-a, III, DES is required to determine a partial tax exemption
based upon the allocation of the applicant’s investment in the facility’s
pollution control purpose. DES made no findings with regard to the investment
allocated by NEL to the pollution control purpose of the stacks. Absent findings
to support the 50% exemption, we are unable to meaningfully review it. SeeMikell, 145 N.H. at 442. Accordingly, we vacate and remand for additional
findings of fact.

V. Heat Recovery Steam Generator

NEL argues that DES erred in refusing to grant a full, or at least a partial,
exemption for the HRSG and associated demineralization system. The HRSG receives
super-heated exhaust from the combustion turbines. The demineralization system
provides clean water to both the water injection system and the HRSG. The HRSG
uses the demineralized water to remove heat from the exhaust. In this process,
steam is generated which is then used to power a turbine to generate additional
electricity. After the exhaust is cooled by the HRSG, it passes through the
facility’s Selective Catalytic Reduction (SCR) system. The SCR is necessary to
remove NOx from the exhaust prior to its exit from the plant. It is undisputed
that the SCR is a pollution control device worthy of a 100% tax exemption.

NEL claimed in its application that the SCR can only function if the exhaust
temperature is lowered as it exits the turbine. Thus, NEL sought an exemption
because the HRSG permits the SCR to function by performing the temperature
reduction. The town disagreed with this characterization and argued that the
HRSG’s sole purpose is additional power generation, and that an SCR can
function without any reduction in exhaust temperature.

In its March 29 ruling, DES denied NEL any exemption for the HRSG, finding
that the HRSG would reduce exhaust temperatures even if the SCR were not
installed due to the HRSG’s role as an additional source of power generation.
However, DES also stated that "[i]f there were a relationship between
certain components within the HRSG and the SCR such that those components become
an integral part of the proper operation of the SCR, then there might be a basis
for granting a partial tax exemption for the HRSG." DES further stated that
"if additional investment must be made to the HRSG to allow the SCR to
operate," it would consider granting a partial exemption. DES also denied
an exemption to the portion of the demineralization system that is associated
with the HRSG, but indicated that a tax exemption for the portion associated
with the water injection system would be appropriate.

In NEL’s request for rehearing, it provided a supporting affidavit from
Bozgo which detailed the interaction between the HRSG and the SCR. Bozgo stated
that because the SCR requires exhaust temperatures no greater than approximately
646 degrees Fahrenheit, a heat recovery device is necessary to reduce the
exhaust temperature from the 1100 degrees Fahrenheit temperature at which it
exits the turbine. In addition, the HRSG reduces the velocity of the exhaust to
permit the SCR to effectively remove the NOx emissions. Thus, Bozgo stated that
the SCR could not function without the HRSG and asserted that "NEL’s
entire investment in the HRSG was necessary for the SCR system to operate."

In objecting to NEL’s request for rehearing on the HRSG ruling, the town
did not provide any additional evidence to support its position, but referred to
other facilities within the State for which DES had denied an exemption for the
HRSG and insisted that the sole function of the HRSG was to increase power
production.

In its ruling denying NEL’s request for rehearing, DES acknowledged that
the HRSG reduces the temperature and velocity of the exhaust before passing
through the SCR. However, DES found that the sole purpose of the HRSG is heat
recovery and power augmentation because it does not treat air pollution and
therefore denied a tax exemption. Further, with regard to the demineralization
system, DES denied NEL’s motion for rehearing because NEL sought to exempt the
entire system rather than only that portion which supplied the water injection
system.

NEL argues that the ruling must be vacated because DES failed to make
findings of fact in support of its decision. We agree. After DES explained in
its March 29 ruling that it would consider an exemption if NEL could prove that
there was a relationship between the HRSG and SCR or if an additional investment
were made into the HRSG to make it compatible with the SCR, it denied NEL’s
motion for rehearing stating that its "investigation indicate[d] that the
facility would perform the heat recovery function of the HRSG regardless of the
existence of the SCR system." The only evidence submitted to DES in
response to its March 29 ruling was NEL’s affidavit from Bozgo, which
described the relationship between the HRSG and the SCR. Yet DES did not address
Bozgo’s affidavit or give any indication that its investigation had produced
information contrary to Bozgo’s description.Moreover, DES did not
state that it relied upon the town’s assertion that other facilities within
the State prove that the SCR would function in the absence of the HRSG. Rather,
DES merely concluded that "the HRSG is not a treatment facility"
because it only reduces exhaust temperature.

We are unable to discern from DES’ ruling how it determined that the
interaction of the HRSG and SCR was insufficient to warrant at least a partial
exemption. Though DES may use its own expertise in reconciling conflicting
evidence or may disbelieve unrefuted evidence, seeAppeal of Savage,
144 N.H. 107, 110 (1999), its ruling is devoid of findings of fact that would
permit meaningful review, seeMikell, 145 N.H. at 442.

Because we cannot determine what reasoning DES relied upon in denying the
exemption, we are unable to establish whether the exemption denial was
unreasonable, unjust or unlawful. Seeid. Thus, we vacate DES’
ruling with regard to the HRSG and remand to DES for findings of fact sufficient
to permit judicial review. To the extent that DES’ denial of an exemption for
the demineralization system was predicated upon its ruling regarding the HRSG,
that ruling is also vacated.

We note that, upon remand, DES may seek additional information, if necessary,
to make findings of fact in accordance with this opinion. See RSA
72:12-a, III.